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The Sentinel Effect: The theory that productivity and outcomes can be improved through the process of observation and measurement. Based on the now-controversial 'Hawthorne study' of the 1930's.

Richard Eskow is CEO of Health Knowledge Systems (HKS) in Los Angeles, which provides services to the healthcare and workers’ compensation industries. Through Eskow and Associates, Richard is also a consultant specializing in healthcare and insurance, IT, strategic planning, and communications. Most clients are in the IT and health-related industries, although Richard has also worked with NGO’s, state and national governments, and in the entertainment industry.

Richard had senior executive positions at several Forture 500 firms and was CEO of two medical management companies before forming HKS. He also served as a senior consultant to the World Bank, the U.S. State Dept/USAID, and government and private entities in over 20 foreign countries. Areas of expertise included health policy, healthcare investment, operations, marketing, and strategic planning.

Dealbreaker: Five Reasons Co-Ops Will Fail

July 29, 2009

Now we’re being told that “health care cooperatives” are emerging as the “centrist alternative” to the public health plan in the Senate. Ezra Klein reminds us that a public plan option wasn’t in any of the other plans Democrats championed. We’re hearing that the idea is gaining in popularity – at least among a small group of U.S. Senators.

Well, why not? What’s wrong with avoiding the stigma of ‘government health care’ by creating co-operatives instead? ‘Co-op’ has a warm, fuzzy, even socialistic sound to it, like the hippies who run the local health food store. Co-op plans like the Group Health Cooperative of Puget Sound deliver excellent care and get consistently high ratings from their members. If we can take some centrist Democrats off the hot seat and still have meaningful health reform, what’s the problem?

Here’s the problem: Co-ops will fail. They will be unable to deliver the kind of comprehensive and systemic reform that’s needed to save the U.S. economy and ensure the health of its citizens. Here are five simple reasons why:

Democrats and their Republican counterparts celebrated when the Massachusetts reform law was passed. There were a few of us who saw warning signs, but our concerns were not given much credence. Yet despite the fact that Massachusetts started out in better shape that much of the country, they haven’t been able to provide systemic reform or insure all their citizens. The state has insured a lot of people, and we’ve learned from its experience. What’s more, Massachusetts is looking at some new and creative ways to create meaningful change. Previous national reform plans didn’t have the benefit of the Massachusetts experience – where it succeeded and where it did not.

A few of us had concerns about these proposals even then. Still, Ezra Klein and others point to earlier reform proposals without a public plan option and ask, why did you support these back then? My answer is this: We’ve learned from experience.

2. Co-ops will be a localized, haphazard solution to a nationwide problem.

When Sen. Kent Conrad first proposed co-ops as an alternative to a public plan option, the discussion centered around “regional cooperatives.” But we’ve had state cooperatives before. They haven’t been able to provide fundamental change in the financing and delivery of health care, because they lack sufficient resources to compete against the seven mega-corporations that now dominate private sector health insurance. They may make marginal improvement in one market or another, but that’s as far as they’ve been able to go.

In response, Sen. Conrad is now making statements like this one: “If somebody came forward and wanted to put together a national entity, they could do that. If various states wanted to join together to have a regional option … nothing would prohibit either of those.”

Sen. Conrad’s use of the passive voice is probably not accidental. If somebody wanted to create a national, not-for-profit cooperative, we wouldn’t stop them. If somebody wanted to create a multi-state organization they would not be “prohibited.” But people don’t create national organizations simply because it’s not explicitly prohibited. A massive undertaking of that kind – which would, incidentally, needlessly replicate the already-functioning infrastructure of Medicare – would require billions of dollars.

Here’s an example of what a public health plan can and does accomplish routinely: Health Leaders Media informs us that a government analysis showed “doctors in certain geographic areas order a lot more unnecessary tests.” Investigators found “questionable ultrasound scans for Medicare patients in 20 counties where they are performed more often per beneficiary.”

Those 20 counties were in the far-flung states of Florida, New York, New Jersey, Texas, and Alabama. Had we been talking about general health insurance under the Conrad plan, we’d be dealing with four or five regional cooperatives that don’t share information and can’t spot these costly and harmful trends. Fortunately, this data was provided by Medicare – that “socialized medicine” system everyone seems to hate like so much.

Large-scale data mining, study – and yes, advisory panels – will be a necessary part of our effort to modernize and innovate our health care system. A balkanized system of fragmented local organizations will not be able to contribute to that process in a meaningful way.

4. Co-ops can’t fight monopolies.

Did you know that health insurance is typically exempt from Federal antitrust regulation? Good thing, too, because a recent study showed that 94% of US markets are “highly concentrated,” according to Justice Department guidelines. Blue Cross dominates Arkansas, for example, with 75% of the market. This monopolization has led to skyrocketing premiums.

A cozy relationship between state politicians and mega-industry has fostered a system where most U.S. markets are dominated by a single health insurance player. On May 29, 2007, then-candidate Barack Obama said this in Iowa City, Iowa: “”We’ll investigate and prosecute the monopolization of the insurance industry. And where we do find places where insurance companies aren’t competitive, we will make them pay a reasonable share of their profits on the patients they should be caring for in the first place.” That’s a good idea.

How do monopolies – especially ones with a cozy relationship to local pols – respond to a new and idealistic intruder? They use the power of favorable contracting (with critical hospitals, for example) to drive the newcomer to their knees. Then they deal a death blow with artificially low premiums until the threat is gone. After that they go back to their old rapacious ways.

Once we had a nationwide system of nonprofit health organizations. While each was local, they were tied into a loose national confederation. Since they were nonprofit, the idea was that their primary goal was to have the interest of their members at heart. The name of this national nonprofit organization?

Blue Cross.

In the last several decades Blue Cross organizations privatized themselves in massive numbers, with the help of supportive state and national politicians. There is no reason to believe that any cooperative will remain nonprofit if it becomes successful. The continued benevolence of any cooperative will depend on the direction and guidance it receives from politicians like Sen. Conrad. But even now, in the courtship phase of this process, Sen. Conrad doesn’t hesitate to discuss the establishment of effective cooperatives with passive and indifferent language (see above.)

What will happen ten years from now, when a few executives have the chance to get rich by converting your cooperative to for-profit status? Can we count on state and national politicians to take a brave stand and refuse them, even in the face of the massive campaign contributions they’ll be able to offer?

I think we know the answer to that.
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Co-ops are not a bad idea – if they are offered alongside a public option. As a replacement for them, however, they’re a dealbreaker. They won’t create the comprehensive, systemic change we need.

UPDATE: Ezra K. clarified his position with a couple of posts, including one which emphasizes the need for a robust insurance exchange. He’s right that current proposals exclude most of us from buying into the public plan option, even if it has been created and we want it. That bothers me. But we’ve tried an insurance exchange without a public plan before (Massachusetts) and it’s not a model for systemic reform. I’d rather see an incrementalist approach – a robust public plan, followed by public demand that forces Congress to open it up to the public. But the exclusionary nature of current public plan proposals is a real problem and I hope it can be changed.

3 Responses to “Dealbreaker: Five Reasons Co-Ops Will Fail”

[…] Sentinel Effect. “The romantic yarn that Barack Obama was born in Kenya, not in the United States, and is therefore an illegitimate POTUS is the core of a still-evolving conspiracy theory that now explodes like a neutron stink bomb splashing on the right wing while leaving the center and left idly smiling and curious. What is going on with the despondent Republican Party that it hosts loonies called the birthers in its ranks?” […]

This post includes a variety of misinformation, ranging from the irrelevance of Massachusetts reform to cooperatives to the projection of public plan fears (of future government undermining) upon the co-op plan. Rather than rehashing them all here at length, I invite you to read a rebuttal at my own blog.

Excellent rebuttal. The organizational structure of cooperatives and the tension between a private sector with a lot of capital and a nonprofit sector with limited mobility is a disaster. Freddie and Fannie, other quasi-nonprofits, went down the same road. On my blog–I describe this as the argument between the zippy red sports car and the big battered yellow bus. After all we have major players in the private insurance business today which started out as nonprofit health care cooperatives–they changed quickly to for profit–guess why.